TRIS Rating has downgraded the company rating of Areeya Property PLC (Areeya) to “BB+” from “BBB-”. At the same time, the outlook is revised to “stable” from “negative”. The downgrade reflects the decline in the company’s operating performance and a rise in financial leverage. The rating continues to reflect the company’s acceptable track record in the middle- to high-end segment of the residential property development market, the cyclical nature of the property development industry, concerns over rising household debt levels, and the current labor shortage. The “stable” outlook reflects the expectation that Areeya will maintain its current financial position over the next two to three years. The rating or outlook could be upgraded if its operating performance improves, the total debt to capitalization stays below 60%, and operating margin rises above 8% on a sustainable basis. On the contrary, the rating and/or outlook could be revised downward should Areeya’s operating performance and its financial leverage significantly deteriorate from the current level.
Areeya was established by Laohapoonrungsee family in 2000 and listed on the Stock Exchange of Thailand (SET) in April 2004. Mr. Wisit Laohapoonrungsee has been Areeya’s chairman and chief executive officer (CEO). The Laohapoonrungsee family has been the company’s major shareholders since inception, owning a 44% stake as of September 2014. Areeya offers a wide range of residential property products including single detached houses (SDHs), semi-detached houses (semi-DHs), townhouses, and condominiums. Its products target the middle- to high-end market segments. As of September 2014, Areeya had 32 active projects. The value of the unsold units across all of its active projects was around Bt10,028 million. More than half (59%) of the value was in condominium projects, 33% was in townhouse projects, and 8% was in SDH projects. Areeya’s backlog stood at Bt2,916 million as of September 2014, most of the units in the backlog are condominiums.
From 2011 through 2013, Areeya’s revenue ranged from Bt1,500-Bt1,700 million per year. Areeya delivers most of its revenue from townhouses. Townhouses account for around Bt800-Bt1,400 million in revenue per year. Areeya recorded revenue of Bt1,778 million in 2013. Revenue in the first nine months of 2014 was Bt1,514 million, a 20% year-on-year (y-o-y) increases from Bt1,262 million in the first nine months of 2013. Revenue in 2014 is expected to stay above Bt1,900 million, with a part of backlog worth around Bt400 million that was realized by the end of 2014. Areeya’s operating profit before depreciation and amortization as percentage of sales continuously dropped from a peak of 21% in 2009 to 6% in 2013 and 6% in the first nine months of 2014. The drop was mainly due to rising selling, general, and administrative expenses.
Areeya’s leverage is high and was continued to increase. As of September 2014, the debt to capitalization ratio was 73.9% (including capitalized annual leases), increasing from 63.8% in 2012. Areeya’s interest-bearing debt to equity ratio was 2.68 times, after rising steadily from 1.60 times in 2012. Areeya asked its creditors to waive bond covenant. Areeya requested a rise in the ratio from 2 times to 3 times. The bondholders approved the waiver in February 2014. Areeya’s cash flow protection has deteriorated over the past few years as profit fell and leverage rose. The ratio of funds from operations (FFO) to total debt also continuously fell in a steady direction, sliding from 2.53% in 2012 to 0.08% in September 2014 (annualized, from the trailing 12 months).
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